Thursday, October 28, 2010

Signs Hyperinflation Is Arriving

This post is gonna be short and sweet—and scary: Back in late August, I argued that hyperinflation would be triggered by a run on Treasury bonds. I described how such a run might happen, and argued that if Treasuries were no longer considered safe, then commodities would become the store of value.

See, how come I don’t look as cool
when I make my predictions?

Such a run on commodities, I further argued, would inevitably lead to price increases and a rise in the Consumer Price Index, which would initially be interpreted by the Federal Reserve, the Federal government, as well as the commentariat, as a good thing: A sign that “the economy is recovering”, a sign that “normalcy” was returning.

I argued that—far from being “a sign of recovery”—rising CPI would be the sign that things were about to get ugly.

I concluded that, like the stagflation of ‘79, inflation would rise to the double digits relatively quickly. However, unlike in 1980, when Paul Volcker raised interest rates severely in order to halt inflation, in today’s weakened macro-economic environment, that remedy is simply not available to Ben Bernanke. Therefore, I predicted that inflation would spiral out of control, and turn into hyperinflation of the U.S. dollar. A lot of people claimed I was on drugs when I wrote this. Now? Not so much.

In my initial argument, I was sure that there would come a moment when Treasury bond holders would realize that they are the New & Improved Toxic Asset—as everyone knows, there is no way the U.S. Federal government can pay the outstanding debt it has: It’s simply too big. So I assumed that, when the market collectively realized this, there would be a panic in Treasuries. This panic, of course, would lead to the spike in commodities.

However, I am no longer certain if there will ever be such a panic in Treasuries. Backstop Benny has been so adroit at propping up Treasuries and keeping their yields low, the Stealth Monetization has been so effective, the TBTF banks’ arbitrage trade between the Fed’s liquidity windows and Treasury bond yields has been so lucrative, and the bond market itself is so aware that Bernanke will do anything to protect and backstop Treasuries, that I no longer think that there will necessarily be such a panic.

But that doesn’t mean that the second part of my thesis—commodities rising, which will trigger inflation, which will devolve into hyperinflation—will not occur.

In fact, it is occurring. The two key commodities that have been rising as of late are oil and grains, specifically wheat, corn and livestock feed. The BLS report on Producer Price Index of commodities is here. Grains as a class have risen over 33% year-over-year. Refined oil products have risen just shy of 13%, with home heating oil rising 18% year-over-year. In other words: Food, gasoline and heating oil have risen by double digits since 2009. And the 2010-‘11 winter in the northern hemisphere is approaching. A friend of mine, SB, a commodities trader, pointed out to me that big producers are hedged against rising commodities prices. As he put it to me in a private e-mail, “We sometimes forget that the commodity markets aren’t solely speculative. Most futures contracts are bought by companies who use those commodities in their products, and are thus hedging their costs to produce those products.”Very true: But SB also pointed out that, hedged or not, the lag time between agricultural commodities and the markets is about six-to-nine months, on average. So he thought that the rise in grains, which really took off in June–July, would hit the supermarket shelves in January–March. He also pointed out that, with higher commodity costs and lower consumption, companies are going to be between the Devil and the deep blue sea. My own take is, if you can’t get more customers, then you’re just gonna have to charge more from the ones you got. Coupled to these price increases is the ongoing Currency War: The U.S.—contrary to Secretary Timothy Geithner’s statements—is trying to debase the dollar, so as to make U.S. exports more attractive to foreign consumers. This has created strains with China, Europe and the emerging markets. A beggar-thy-neighbor monetary policy works for small countries getting out of a hole of their own making: It doesn’t work for the world’s largest single economy with the world’s reserve currency, in the middle of a Global Depression. On the contrary, it creates a backlash; the ongoing tiff over rare-earth minerals with China is just the beginning. This could easily be exacerbated by clumsy politicking, and turn into a full-on trade war. What’s so bad with a trade war, you ask? Why nothing, not a thing—if you want to pay through the nose for imported goods. If you enjoy paying 10, 20, 30% more for imported goods—then hey, let’s just stick it to them China-men! They’re still Commies, after all!Furthermore, as regards the Federal Reserve policy, the upcoming Quantitative Easing 2, and the actions of its chairman, Ben Bernanke: There is an increasing sense in the financial markets that Backstop Benny and his Lollipop Gang don’t have the foggiest clue about what they’re doing. Consider: Bruce Krasting just yesterday wrote a very on-the-money précis of the trial balloons the Fed is floating, as regards to QE2: Basically, Bernanke through his WSJ mouthpiece said that the Fed was going to go for a cautious, incrementalist approach, vis-à-vis QE2: “A couple of hundred billion at a time”. You know: “Just the tip—just to see how it feels.”But then on the other hand, also just yesterday, Tyler Durden at Zero Hedge had a justifiable freak-out over the NY Fed asking Primary Dealers for their thoughts on the size of QE2. According to Bloomberg, the NY Fed was asking the dealers how big they thought QE2 would be, and how big they thought it ought be: $250 billion? $500 billion? A trillion? A trillion every six months? (Or as Tyler pointed out, $2 trillion for 2011.)That’s like asking a bunch of junkies how much smack they want for the upcoming year—half a kilo? A full kilo? Two kilos? What the hell you think the junkies are gonna say?Between BK’s clear reading of the tea leaves coming from the Wall Street Journal, and TD’s also very clear reading of the tea leaves by way of Bloomberg, you’re getting a seriously contradictory message: The Fed is going to lightly tap-tap-tap liquidity into the markets—just a little—just a few hundred billion dollars at a time——while at the same time, the Fed is saying to the Primary Dealers, “We’re gonna make you guys happy-happy-happy with a righteously sized QE2!”The contradictory messages don’t pacify the financial markets—on the contrary, they make the markets simultaneously contemptuous of Bernanke and the Fed, while very frightened as to what they will ultimately do. What happens when the financial markets don’t really know what the central bank is going to do, and suspect that the central bankers themselves aren’t too clear either? Guess. So to sum up, we have:

• Rising commodity prices, the effects of which (because of hedging) will be felt most severely in the period January–March of 2011.

• A beggar-thy-neighbor race-to-the-bottom Currency War, that might well devolve into a Trade War, which would force up prices on imported goods.

• A Federal Reserve that does not seem to know what it is doing, as regards another round of Quantitative Easing, which is making the financial markets very nervous—nervous about the Fed’s ultimate responsibility, which is safeguarding the U.S. dollar.

• A U.S. economy that is weak to the point of collapse, where not even 0.25% interest rates are sparking investment and growth—and which therefore prohibits the Fed from raising interest rates, if need be.

• A U.S. fiscal deficit which is close to 10% of GDP annually, and which is therefore unsustainable—especially considering that the total U.S. fiscal debt is well over 100% of GDP.

These factors all point to one and the same thing: An imminent currency collapse. Therefore, I am confident in predicting the following sequence of events:

• By March of 2011, once higher commodity prices reach the marketplace, monthly CPI will be at an annualized rate of not less than 5%.

• By July of 2011, annualized CPI will be no less than 8% annualized.

• By October of 2011, annualized CPI will have crossed 10%.

• By March of 2012, annualized CPI will cross the hyperinflationary tipping point of 15%.

After that, CPI will rapidly increase, much like it did in 1980. What the mainstream commentariat will make of all this will be really something: When CPI reaches 5% by the winter of 2011, pundits and economists and the Fed and the Obama administration will all say the same thing: “Happy days are here again! People are spending! The economy is back on track!”However, by the late spring, early summer of 2011, people will realize what’s going on—and the Federal Reserve will initially be unwilling to drastically raise interest rates so as to quell inflation. Actually, the Fed won’t be able to raise rates, at least not like Volcker did back in 1980: The U.S. economy will be too weak, and the Federal government’s balance sheet will be too distressed, with it’s $1.5 trillion deficit. So at first, the Fed will have to let the rising inflation rate slide, and keep trying hard to explain it away as “a sign of a recovering economy”. Once the Fed realizes that the rising CPI is not a sign of a reignited economy, but rather a sign of the collapsing dollar, they will pursue a puerile “inflation fighting” scheme of incremental interest rate hikes—much like G. William Miller, the Chairman of the Fed from January of ‘78 to August of ‘79, pursued so unsuccessfully.

2012 will be the bad year: I predict that hyperinflation’s tipping point will be no later than the first quarter of 2012. From there, it will accelerate. By the end of 2012, I would not be surprised if the CPI for the year averaged 30%. By that point, the rest of the economy—unemployment, GDP, all the rest of it—will be in the toilet. By that point, the rest of the economy will no longer matter: The collapsing dollar will make 2012 the really really bad year of our Global Depression—which is actually kind of funny.

It’s funny because, as you know, I am a conservative Catholic: I of course put absolutely no stock in the ridiculous notion that “The Mayans predicted our civilization’s collapse in 2012!”—that’s all rubbish, as far as I’m concerned. It’s just one of those cosmic jokes that 2012 will turn out to be the year the dollar collapses, and the larger world economies go down the tubes. As cosmic jokes go, all I’ve got to say is this: Good one, God.

127 comments:

That's a pretty bold prediction but I give you props for making it publicly. John Williams from shadowstats said that he sees the everything being in place around March - June 2011 for hyperinflation to start taking hold. The Nov. 3rd FOMC meeting has the potential to be the final nail in the coffin for the U.S. dollar. Exciting times ahead. Keep writing.

GL, living in Europe, I would like to know your take on what happens to some of the European economies.

My particular country (a smaller Northern one) is living hand-to-mouth, or more accurately, the government is borrowing like there's no tomorrow to meet all the obligations they have given themselves over the years, to cover for the fact that revenues have dropped like a stone.

They also project to do that borrowing from other countries well into late 2010s.

So, if 2012 is the year of hyperinflation in the U.S., shutting down the U.S. borrowing of world's monies, does that borrowing window close for most of the other western countries as well at the same time?

Because if that is the case, my particular country is looking at at least a 17% instant "austerity" on the budget (and more as economy falls further), going into a system of "get one peso, spend one peso" (from Bolivian Juan Cariaga, www.pbs.org/wgbh/commandingheights/shared/minitext/tr_show02.html#11, about their hyperinflation correcting measures).

The biggest thing that sticks out to me from your post is that everyone is waiting anxiously like begging dogs to see what the private Fed Reserve is going to give them. I've known that we are all pawns in a bigger game all along, but how long are we going to stand by and accept this system as legitimate? When are we going to demand from our government, our representatives, that there must be consequences for their actions?

Or are we really that dumb to beg for the table scraps of these clowns who treat their positions like they are owed that position of power? The power comes from you and me recognizing it as legitimate. If we don't, we will be an unstoppable force against those who we willingly allow to take advantage of us.

I guess it took putting it in those words for it to really sink in. I hope you are wrong, but I am preparing as much as possible for when you are right. Be blessed.

Great post as always, GL. Bold prediction, but based on data and some pretty sound reasoning. I too, hope you are wrong, but just one glance at the Fed's balance sheet, Bernanke's persistance, and lawmakers' ambivalence/ignorance has me resigned to the fact that we are done for.

Idea for future post: what can investors/people due to prepare for this economic tsunami? Is gold the real store of value or would it make sense to take those worthless dollars and buy companies that sell needs like food when everyone dumps their stock for cash? I don't pretend to know the answer, but I would be interested in hearing other ideas.

Thank you, Mr. Lira. I am just a simple truck driver, but thanks to people like you, I have been looking real smart over the past few years. For all the ignorant/uninformed who now ask for my opinions, I now have something I can use to scare the poop out of them! These may be scary times, but I intend enjoy myself just the same. Oh well, back to collecting nuts.

Interesting read and indeed scary, but actually, at this point, I would love a trade war with China! What do they have that we can't do without other than cheap goods which the majority of Americans have gone into debt to purchase and of course, JOBS! No one says a word about import duties or tariffs to level the playing field so that we can go back to producing our own goods for consumption at home. Pay more for those goods? Hell yes! Cheap shit from Third World countries is what has killed the goose that has been laying the gold eggs for the rest of the world ever since WWII. The thrill ride is over and we have to get back to reality and produce products and jobs here in America, even if they cost more.

Here's an alternate prediction.--A merchant in India will read online about how the dollar is dropping against the rupee and how the Fed is actively debasing the dollar. It worries him. So he pulls his dollars out of his mattresses.--When he goes to his money changer to trade dollars for rupees. He will be shocked to get a much worse price than listed online. This has never happened before, but too many others had the same idea and the money changer is overloaded with dollars. He will notice a line is forming as he leaves and he will get on his cell phone and begin calling friends to warn them about their dollars.--By that afternoon, Indian banks will see a huge influx of dollars and they'll start trying to lay them off onto someone else.--The central bank will take some, but then they will get concerned and temporarily close the window to dollars.--Then the real panic will set in, spreading rapidly around India and across SE Asia and then to the rest of the world.--Banks and investors everywhere join in, selling dollars and Treasuries. A huge imbalance in sellers vs buyers will cause interest rates to spike and the Fed will step in, buying up Treasuries to prevent this. --The panic just keeps spreading and the Fed just keeps buying. --Even while talking to the Fed about coordinating support for the dollar, some central banks will be secretly selling dollars through intermediaries. --Within 48 hours the Fed is the proud owner of most of the US government's debt. This fact soon become apparent and the buying power of the dollar tanks. --OPEC countries begin demanding gold for oil deliveries to the USA.--TEOTWAWKI

As Abraham Lincoln stated: America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.

I believe we are in the first stages of a new America, the new normal. This new normal for Americans is not something they are used to, as we all know, Americans have a heightened sense of entitlement.I was born and raised in Europe where no such entitlements existed, thus I believe I am better suited and more educated in being able to better understand the complexities of the current fiscal Armageddon the USA is facing.

I neither wish or hope that America has to endure what is surely coming, but, I strongly hope that America ditches the old clichés of “Land of the Free” “God Bless America” “Liberty” and all the Patriotic BS. How many US citizens will embrace these once cherished beliefs when they start to see prices rise, no access to affordable healthcare, no decent schools, higher education costs, and so on.

You can always count on Americans to do the right thing – after they’ve tried everything else.

"However, unlike in 1980, when Paul Volcker raised interest rates severely in order to halt inflation, in today’s weakened macro-economic environment, that remedy is simply not available to Ben Bernanke."

It is not available because Benny the Bubble and his primary dealers are locked in a QUADRILLION dollar interest rate futures derivative stalemate. And not by chance, but by design. It's too mcuh to explain the history of how many times the honorable profession of commerce has been hijacked by organized crime, but if you mix in financial innovation and technology you get magnitudes of risk on the order of the extinction of the human race.

And that extinction is the ransom we gradually bailout, until ... we're extinct.

Thanks for the post. Very scary scenario. The interesting thing is the timing of the worst part of the collapse. 2012 is an election year and as it's looking like the GOP will be making some significant gains this year I can see how the Dems will blame the collapse on the GOP. Although *we* know that the seeds of this have already been sown and it won't be the fault of whoever is in power for 2011-2012, the liberal media will try to blame it on the Republican Congress and the gullible public might react by voting the Dems back in. I hope that doesn't happen...

This was posted on economicpolicy.com and supports your analysis, and a great chart. Linked to, http://www.shtfplan.com/emergency-preparedness/stunning-chart-the-real-rate-of-inflation-and-how-to-protect-yourself_10272010?utm_source=twitterfeed&utm_medium=twitter

As I understand inflation and rising prices, your hyperinflation scenario resembles a kind of inflation on steroids. That is not hyperinflation, which is actually a rejection of the currency. Under a hyperinflation I don't want more money -- I want to immediately get rid of the money that I have -- to turn it into something real -- to anyone that will take those dollars. Picture in your mind, if you will, a scene where debtors with fists full of dollars are trying to chase down their bankers to pay off debts, with the bankers in full stride trying to get away from them.

The solution to our present monetary problem is to simply let the dollar fall to zero. What wasn't paid off in worthless dollars defaults, and we start over -- preferably with money backed 100% by silver/gold controlled by the free market and without government interference. The U.S. has the largest stockpile of gold of any country in the world. Once that gold was divided evenly among its citizens, the free market would take over.

Gonzalo, very nice writing of late. As far as prophecy goes, one should not make light of things they do not completely understand. Nostradamus did look cool, but he was more than looks. I don't mean that as heavy handed as it sounds, by the way. This would apply towards those who mock gold as a barbaric relic. I'm not saying the world will end in 2012, I personally don't believe that either. Do consider though that Nostradamus may have actually predicted the collapse of the dollar:

The imitations of gold and silver will become inflated,Which after the rape [or robbery] are thrown into the fire,After discovering all is exhausted and dissipated by the debt,All scripts and bonds are wiped out.----------------------------------------------Many ways this could apply to now: bond market bubble, QE's, gold/silver short squeeze, an empty fort knox, gold/silver lending schemes.

I thought I explained it sufficiently in the above article, yet people continue to follow the incorrect logic of this writer Gonzalo Lira. He writes recently that the recent fast rise in commodity prices is a sign of arriving hyperinflation:

It is impossible to get hyperinflation with respect to general commodities, when the unit-of-account (the currency) is global and wages are not increasing at same rate as commodities are, because if the entire world has to pay runaway spiring up prices for commodities, then pretty soon no one has any more money to buy anything, and the global economy implodes. At that point, no one can sell the commodities they held, and there is a crash in prices.

In other words, the stampede (aka public confidence, Sinclair "currency event") logic doesn't work, and thus it is impossible to get hyperinflation when the dollar is the global reserve currency, all other currencies must devalue with the dollar, and hyperinflated quantities of currency are not literally and physically being distributed to all the people every where in the world. The reason all other currencies must devalue with the dollar is because oil and commodities are always available to be purchased with dollars. This is why the US military is stationed all over the world, to make sure that the dollar remains liquid for purchasing commodities and oil. We know that socialism's entitlement and other distributions are just barely keeping the people level in terms of nominal cash flows, no where near hyperinflated increases in distributed currency to the general populace and especially not worldwide in every country.

Hyperinflation can only occur when a local currency is destroyed, by a stampede out of that local currency to commodities. In that case, the price of commodities rise in runaway upward spiral with respect to that local currency, but do not rise with respect to the currency that the rest of the world is using. Thus such hyperinflation is sustainable until the local currency dies.

The only hyperinflation that is possible on a global reserve currency is relative to gold and silver. And this is happening now. This is actually DEFLATION, because everything is getting cheaper with respect to real money (gold and silver). And deflation is exactly what is expected during a debt implosion.

Commodities will rise in price only as fast as the developing world wages rise. We will see periods of boom and bust over the next years or decade, as the global reserve currency (the current fiats all hinged to dollar) dies with respect to gold and silver.

I have made dozens of comments on this site, which further detail my logic:

http://www.google.com/search?q=site:marketoracle.co.uk+Shelby+Moore

I have also discussed this in great depth and quoting from numerous articles (from this site) at my forum (which is free, I sell nothing, I am software developer, ad-hoc economist, and ad-hoc theoretical physicist):

It's quite interesting that the Federal Reserve, a private corporation, could possibly end up buying all that debt with money created out of thin-air, just like it always does. However, when they take over debt, they also take title to the collateral supposedly backing that debt. When the Great Red Dragon book was written in 1889, it stated that the foreign Money Power planned to "own the earth in fee-simple." The recent unprecedented debt accumulation might just be how they planned to achieved that goal.

I will post this in multiple parts, as it is too large to fit in one comment.

DEFLATION, NOT HYPERINFLATION=============================

http://www.marketoracle.co.uk/Article23162.html

I thought I explained it sufficiently in the above article, yet people continue to follow the incorrect logic of this writer Gonzalo Lira. He writes recently that the recent fast rise in commodity prices is a sign of arriving hyperinflation:

It is impossible to get hyperinflation with respect to general commodities, when the unit-of-account (the currency) is global and wages are not increasing at same rate as commodities are, because if the entire world has to pay runaway spiraling up prices for commodities, then pretty soon no one has any more money to buy anything, and the global economy implodes. At that point, no one can sell the commodities they held, and there is a crash in prices.

In other words, the stampede (aka public confidence, Sinclair "currency event") logic doesn't work, and thus it is impossible to get hyperinflation when the dollar is the global reserve currency, all other currencies must devalue with the dollar, and hyperinflated quantities of currency are not literally and physically being distributed to all the people every where in the world. The reason all other currencies must devalue with the dollar is because oil and commodities are always available to be purchased with dollars. This is why the US military is stationed all over the world, to make sure that the dollar remains liquid for purchasing commodities and oil. We know that socialism's entitlement and other distributions are just barely keeping the people level in terms of nominal cash flows, no where near hyperinflated increases in distributed currency to the general populace and especially not worldwide in every country.

Hyperinflation can only occur when a local currency is destroyed, by a stampede out of that local currency to commodities. In that case, the price of commodities rise in runaway upward spiral with respect to that local currency, but do not rise with respect to the currency that the rest of the world is using. Thus such hyperinflation is sustainable until the local currency dies.

The only hyperinflation that is possible on a global reserve currency is relative to gold and silver. And this is happening now. This is actually DEFLATION, because everything is getting cheaper with respect to real money (gold and silver). And deflation is exactly what is expected during a debt implosion.

Commodities will rise in price only as fast as the developing world wages rise. We will see periods of boom and bust over the next years or decade, as the global reserve currency (the current fiats all hinged to dollar) dies with respect to gold and silver.

I have made dozens of comments on this site, which further detail my logic:

http://www.google.com/search?q=site:marketoracle.co.uk+Shelby+Moore

I have also discussed this in great depth and quoting from numerous articles (from this site) at my forum (which is free, I sell nothing, I am software developer, ad-hoc economist, and ad-hoc theoretical physicist):

In other words, the stampede (aka public confidence, Sinclair "currency event") logic doesn't work, and thus it is impossible to get hyperinflation when the dollar is the global reserve currency, all other currencies must devalue with the dollar, and hyperinflated quantities of currency are not literally and physically being distributed to all the people every where in the world. The reason all other currencies must devalue with the dollar is because oil and commodities are always available to be purchased with dollars. This is why the US military is stationed all over the world, to make sure that the dollar remains liquid for purchasing commodities and oil. We know that socialism's entitlement and other distributions are just barely keeping the people level in terms of nominal cash flows, no where near hyperinflated increases in distributed currency to the general populace and especially not worldwide in every country.

Hyperinflation can only occur when a local currency is destroyed, by a stampede out of that local currency to commodities. In that case, the price of commodities rise in runaway upward spiral with respect to that local currency, but do not rise with respect to the currency that the rest of the world is using. Thus such hyperinflation is sustainable until the local currency dies.

Maybe the objective is a quiet move to finally dollarise most or all of the world. The dollar could find enormous renewed demand worldwide because it could act like a very large global put or huge short position against all debt owed everywhere and needed to pay expenses, taxes and interest on debt. It would seem the folks that manufacture the tools that create the dollar could also induce wholesale debt, commodity and personal property liquidation at anytime without hyperinflation. Some very wise people have said, if something is this obvious, it obviously isn't going to happen.

I would like to point out that we have had price inflation over the last two years but the mainstream media has completely ignored it. So has Congress--probably because their maid goes to the supermarket and not them--and so no COLA for the elderly and disabled.

As for prices rising 6 months later, that's a crock. If the price of crude goes up, the gas stations immediately raise the price of gasoline, often on the same day.

Vy the way, I've been stocking coffee and sugar for barter. Vodka too.

i value these predictions equal to the view counter on this page. seems someone is looking for attention. i am sure in one to two months we ll get new predictions adjusted to the flow of things. that's what's the prediction business about...

There is a great piece from May 8th of this year. Gonzalo, if you will allow me to point your readers to it, here it is:

Kingworldnews.com

May 8th interview with Rob Arnott (Chairman, Research Affiliates)

Excellent piece that rationally (and accurately) explains our debt-service-load and the likely government responses/reactions to it.

Governments have stifled/distorted the natural laws of deflation before and they will do it again, all effecting a much worse outcome than if the natural deflationary, market-clearing process was allowed to play out.

Unfortunately, Politics is what gets in the way, and as anyone with a pulse recognizes, It's All Political Now -

As people point out, as long as all world commodities are priced in dollars and 60% of central bank reserves around the world are dollars we probably won't have full hyperinflation. But what this means is the world will be detaching from the dollar in the early stages.

Also, bond market failure really is the normal start of hyperinflation. It might not be "the official trigger" but it probably is the real trigger. If the Fed has to buy all the bonds then the gig is really up.

Wait! From predicting a T-bond boycott/selloff to detecting currency devaluation??

Wow! GL gets religion...late. This is a sudden 180-degree turn...everyone KNEW that price inflation would be triggered by a run for commodities based on the collapsing dollar.

Does anyone out there REALLY THINK that traditional, cost-push, investment-in-plant-and-equipment, higher employment would drive price inflation? Dream on...to concur with that, you have to buy the current mainstream line...

We've had this argument with the die-with-your-boots-on deflationists for MONTHS now. They're wrong in saying that deflation everywhere will swamp all. You CAN have price inflation coupled with debt-dependent-asset deflation. At the same time. Maybe in different areas but they can coexist...

Just took you a long time to come round to it,and a rather suddent U-turn...

Fight the fed and the banksters, put your US dollars into gold and silver ASAP. A supply of food and some knowledge of guns and how to use them and you too should be set to survive the craziness the government is about to unleash upon us all.

maybe all this is leading to 12/21/2012 when the alignment takes place as the mayan calendar predicts. let's hope a true transformation of consciousness takes place in each of us during this unique event.

One reason it is hard to believe is because the Catholics were so busy burning Mayan codices in the 16th century there is little remaining background material to study.

http://en.wikipedia.org/wiki/Maya_codices

Also in the 16th century Catholics burnt Bruno, a former Dominican (one of the orders that burnt the codices) friar, at the stake for attempting to expand knowledge of the galaxy, and allow Europeans the basis to understand some of what the Mayan calendar had been tracking for centuries.

Typical of Catholic authorities with power: Wipe out knowledge that calls their dogma into question, then ridicule the remnant that escapes.

I see two big reasons other currencies will be in trouble when the dollar gets in trouble. First, the central bank reserves used to support other currencies are mostly in dollars. So if the reserves become worthless they can not support their local currency. Second, if people see that the mighty dollar can fall, then clearly any paper money is vulnerable.

Too bad ole Peter Schiff couldn't stop by at a time like this to at least warn everybody what "might" happen when everybody gets so decidedly on the same side of the trade. How much did he lose his deciples as a result of touting runaway inflation and the death of the dollar before the Lehman/Bear collapse? And he had oil at $150/bbl and Goldman Sux calling for $200/bbl on his side back then. I guess oil forgot it was a measure of inflation but luckily gold picked up the slack *-) I know...I know...Schiff would right now be like everybody else....calling for the death of the dollar and runaway inflation all over again. What was I thinking? I will tell you this tho...all you ex-spurts had better be right about the coming collapse of the dollar and spiraling inflation cuz you are all in this together. I certainly hope you don't mind if I stand close to the exits tho. Uncle Ben has done a fine job of making sure that real estate has sloooooowly meandered it's way to it's final destination. Who's dumb enough to buy a house anyway when there are stocks that have rallied from $2 to $40+ in 2 years? Good thing we don't have to worry about bubbles anymore. Mr. Market is "obviously" gonna be kind to those who heed the rhetoric of Uncle Ben. That's pretty "obvious" ...all you need to do is come to this site and read the commentary. Peter Schiff can't make the same mistake twice...can he? :o

It's hard for me to contemplate all those people who took out huge debts to buy more house than they could afford will somehow make out like bandits pushing cart loads of devalued dollars to the bank to pay off their note. (poor borrowers massively short dollars)

Especially when those dollars are owed to the wealthy in society, (tptb massively long dollars)

That's what should happen in a hyperinflation. So I kind of doubt that's what we'll get.

Besides, I think we have already had our inflation. From 1973 till 2008 the price of everything went up.

Remember what Thomas Jefferson said- If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation"

Notice Jefferson says the inflation comes first, after inflation then comes the deflation. The rest of his qoute about people being deprived of their property and ending up homeless also has come true. One smart guy that Jefferson.

Can we have price increases in commodities that don't require debt financing? Sure, Copper, cotton and agriculture are doing well of late. Natural gas, zinc, lead, nickel not so hot. Oil just kind of trading in a range, well off it's 2008 high.

When the essentials, oil and food, rise in price because of peak oil or drought, it just squeezes flat incomes causing the price of non essential commodities to fall. Rising prices in a few select commodities doesn't signal inflation nor hyper inflation necessarily, it might just be a supply constraint.

From a very small Northern European country I refer you all to the following article published on Wednesday - http://www.theglobeandmail.com/report-on-business/commentary/neil-reynolds/the-scary-actual-us-government-debt/article1773879/

Gonzalo I just made it to 62 years of age. I have seen a lot of prophets and analyst making prediction. You are the top 1% and your work is genius. It is also solidly researched. What have I learned in 62 years of life? Most important is that luck plays a big part in what happens to us. "Some are lucky and some are not." Of equal importance to luck is the word MISCALCULATION. Wars always happen because of one side under estimating or failing to communicate with and understand the other side. Economic collapses happen due to miscalculation. People or organizations do not see the consequences of their actions and the long term implications. This is exactly what is going to happen with this hyper inflation scenario. People need to take you seriously and prepare for this eventuality.

HERE IS THE other part of prediction that you did not include in your blog post. Please educate yourself so you can eat the whole enchilada.

UN Agenda 21 is no "theory" and it's no joke. It's far more serious than a collapsing US dollar. The intentional collapse of the US dollar is the catalyst to arrive at the plans outlined in UN Agenda 21.

Anonymous of October 28, 2010 1:35 PM wrote "Cheap shit from Third World countries is what has killed the goose that has been laying the gold eggs for the rest of the world ever since WWII".

Actually, it only buried a goose that something else killed; jobs were being pushed out by other forces, and if there hadn't been offshoring opportunities they would only have gone a bit slower, into things like automation. And the goose HASN'T "been laying the gold eggs for the rest of the world ever since WWII", it was responsible for ringbarking everybody else's efforts to manage without the USA in the first place - basically the same thing people here are complaining about now that the boot is on the other foot.

It is funny how the Fed has got it entirely wrong. The near zero interest rates are exacerbating the problem. Business needs customers to expand. The aging retired, and near retired population has had their income cut to almost nothing as interest rates on their savings has dropped to near zero.

With an ever aging population, and income for savers in the toilet, even the employed are seeing their disposable income disappear.

Want to stimulate the economy, give me some interest income to spend. That will drive business expansion.

The stockmarket only looks good, because the comparison is to .25% on savings. Blue chips that can't earn any more than 2% or 3% on equity ought to be shunned.

[2] From the time of peak credit, December 2008, total consumer credit outstanding has deflated -6.6%.

[3] From the peak of the economy expansion, roughly, August-September 2007 until now (August-September 2010), total consumer credit outstanding has inflated by +2.6%.

[4] Prices have fallen for goods bought primarily with credit as the primary economic quantity of purchasing.

[5] Year-over-year money accretion has increased +4.4%.

[6] From the peak of the economy expansion, roughly, August-September 2007 until now (August-September 2010), money accretion is up a whopping +18.24%

[7] Prices have risen for goods bought primarily with cash.

Money accretion — the addition of new Federal Reserve banknotes and U.S. token coins joining in circulation with existing ones — has increased 4.4%, which means of course, the buying power of the U.S. dollar within U.S. borders has fallen by that much, potentially.

Inflation is a purpose-driven process undertaken by central bankers, in our case, Federal Reserve bankers, to increase the number of products sold by their member commercial bankers — opened contracts of credit.

Inflation is not a rise in prices nor is it “an increase in the money supply”, although you could think of the result of inflation as an increase in the money SUPPLIED, that is, an increase in bank credit.

Having parents that went through WW2 and Grandparents that lived the great depression I was under no illusion that we are facing hyperinflation. Since 1999 we have been on a rocky road to Hyperinflation, led by the boom and bust of the Clinton years and the thrifty spending, War's and false growth of the two term Bush years have signaled the end of days for the worlds middle class. We are fast approaching the days of 1936 in Germany when they awoke to Hyperinflation and struggled to pay for a loaf of bread. The coming food and commodity wars is a great warning to us all, wake up now.

In a deflationary credit contraction, money flows down the liquidity pyramid to treasuries (perceived wealth) and gold and silver (real wealth). That's why they are both doing well. The monetary inflation/stimulus thus far is being dwarfed by the credit contraction (loans paid off or defaulted upon). The debt to GDP ratio has a long way to go before hitting Japanese status. Things can last much longer than people think. Doesn't mean the Fed won't keep doing QE2, QE3, QE Infinity.

Eventually, when the banks implode with the sub-investment derivatives that have no counterparty come due the next 1-5 years, the "faith" in the system will dissipate, bank runs will occur, and treasuries will be the last asset that folks will attempt to convert to a worthless dollar and eventually gold and silver; the last bastion of wealth.

Will the United Sates Federal Government Enforcement and Police of America side with the Federal Reserve and the National as well as International Financial Institutions and Corporate Institutions that have caused this economic tyranny through fraud, force and coercion?

Or will the officers, agents, deputies, sheriffs, police, employees and civil servants side with the people of America in seeking Truth, Justice and the American way?

Will America show her true virtue in peaceful restoration of Justice , Equity, Prosperity and Purpose of our Re-Public?

First of all let me point out that you are full of yourself. And second don't let your religious beliefs cloud your timeline of events. I agree with you in your assessment of future inflation but disagree with you regarding the magnatude of inflation that will occur. Have a good day.

I have trouble finding 1 complete paragraph in this article that makes any sense. It's so far from reality I thought a freshman student of Economics 101 wrote it. Read Shelby's comments above. He/she is far closer to the reality we face. When deflation really hits,(and it is just barely beginning to surface), we will all be praying for hyperinflation. Don't believe it? Ask anyone who lived through the Great Depression.

Thank you for making it simple. It is labor costs i.e. union labor costs. Ask the airlines. Ask the auto manufacturers. We can't continue to pay high wages and extreme health and benefit packages for union workers. I for one am tired of paying to support outlandish and unrealistic wages and benefits for labor. Join the rest of America and sacrifice.

WOW all this stuff about 2012, Catholicism, Dollar and Gold. I find the "Golden Rule" very interesting in that he, who has the Gold, makes the rules. Did anyone stop to consider the 1000 year reign of the Roman Empire and its eventual fiscal collapse. That ol republic became an Empire of debt and after hundreds of years of exploiting and fleecing other countries of their wealth (Gold) it collapsed under its own weight of Greed and deception only to resurface as the Ol Holy Roman Empire. This new Religious Empire continued in this vein until today it’s the largest single holder of the Yellow metal. Ever wonder why all the governments of the G20 meet with the kingpin of this Ol boys club. What good is paper without Gold? What good is Gold without paper? Who runs the "wailing Wall" Street? Who formed an alliance? Who will double cross who? In the end, the Ol boys club will have bailed out America because they need the muscle. Rules will be made, agreements broken, and history will once again repeat itself. People who get in the way and don't conform...will die.

NIA is pleased to announce that 'End of Liberty' will be released on Halloween night. It wasn't our original intention to release the movie on Halloween. We just happened to finish all of the final touches today and Halloween is the earliest day we can get the movie out.

'End of Liberty' is NIA's largest project in history. The movie is 1 hour and 14 minutes long. NIA spent over 12 hours per day for 2 and 1/2 months straight producing it. 'End of Liberty' was made possible by thousands of NIA members who submitted their warning signs as to why a U.S. societal collapse is ahead.

The Federal Reserve is getting ready to meet next week and announce massive quantitative easing. On July 19th, with everybody in the mainstream media talking about the threat of deflation, NIA said, "this is the calm before the storm...the Federal Reserve is quietly getting ready to implement 'The Mother of All Quantitative Easing'."

NIA has consistently been at the forefront of all major economic trends. In all three of NIA's previous documentaries, we strongly urged Americans to invest in gold, silver, and agricultural commodities. These three assets have by far outperformed all other asset classes in recent months. NIA's latest two stock suggestions each gained at their highs by 111% and NIA's silver call option suggestion from earlier this year gained by 378%.

NIA members are prospering while the rest of America is going broke. The most important thing that you can do to help your fellow American friends and family members is to spread the word about 'End of Liberty' after the movie is released Sunday night. Our last documentary 'Meltup' has now surpassed 857,000 views, but it is important for millions of Americans to watch 'End of Liberty'.

It might be too late to prevent hyperinflation, but if we can get millions of Americans to watch 'End of Liberty', we might be able to prevent a complete collapse of American society.

It doesn't matter who wins next week's elections. Even if the Republicans regain some power there is no chance of the government cutting spending in a way that balances the budget and prevents hyperinflation. In fact, a Republican victory next week increases the chances of Obama being reelected in 2012.

Our only hope for our nation to survive is to educate enough Americans to the truth so that come 2012, we can elect a true Libertarian candidate like Ron Paul as President.

There is still time for your friends and family members to be the first to see 'End of Liberty' along with you. Please tell them to become a member of NIA for free right away at: http://inflation.us

NIA is pleased to announce that 'End of Liberty' will be released on Halloween night. It wasn't our original intention to release the movie on Halloween. We just happened to finish all of the final touches today and Halloween is the earliest day we can get the movie out.

'End of Liberty' is NIA's largest project in history. The movie is 1 hour and 14 minutes long. NIA spent over 12 hours per day for 2 and 1/2 months straight producing it. 'End of Liberty' was made possible by thousands of NIA members who submitted their warning signs as to why a U.S. societal collapse is ahead.

The Federal Reserve is getting ready to meet next week and announce massive quantitative easing. On July 19th, with everybody in the mainstream media talking about the threat of deflation, NIA said, "this is the calm before the storm...the Federal Reserve is quietly getting ready to implement 'The Mother of All Quantitative Easing'."

NIA has consistently been at the forefront of all major economic trends. In all three of NIA's previous documentaries, we strongly urged Americans to invest in gold, silver, and agricultural commodities. These three assets have by far outperformed all other asset classes in recent months. NIA's latest two stock suggestions each gained at their highs by 111% and NIA's silver call option suggestion from earlier this year gained by 378%.

NIA members are prospering while the rest of America is going broke. The most important thing that you can do to help your fellow American friends and family members is to spread the word about 'End of Liberty' after the movie is released Sunday night. Our last documentary 'Meltup' has now surpassed 857,000 views, but it is important for millions of Americans to watch 'End of Liberty'.

It might be too late to prevent hyperinflation, but if we can get millions of Americans to watch 'End of Liberty', we might be able to prevent a complete collapse of American society.

It doesn't matter who wins next week's elections. Even if the Republicans regain some power there is no chance of the government cutting spending in a way that balances the budget and prevents hyperinflation. In fact, a Republican victory next week increases the chances of Obama being reelected in 2012.

Our only hope for our nation to survive is to educate enough Americans to the truth so that come 2012, we can elect a true Libertarian candidate like Ron Paul as President.

There is still time for your friends and family members to be the first to see 'End of Liberty' along with you. Please tell them to become a member of NIA for free right away at: http://inflation.us

I do believe that you are fairly close to being a bulls eye on this one. Prices are already starting to creep up in supermarkets. Things is gonna get uglier here than they have in Europe over all this as Dufus Americanus starts to figure out that the free ride they were promised is ending.

another dumbass whose understanding of money supply is severely flawed because the austrian school of rockefeller foundation and william volker fund lies and deception leads them to believe the government prints money. the banks create money though fractional reserve banking. the government and federal reserve merely borrows already created money. hyperinflation. laughable. the problem is lack of money supply. lack of money supply leads to unemployment and prices falling, such as what happened with land value. we're not even close to having hyper-inflation. another right-wing libertarian who has it completely backwards because they're brainwashed by the globalist bankers.

Hyperinflation will not happen in the US as the reserve currency. The USD is priced against a basket of other currencies. Massive hyper inflation here means massive hyper deflation in all other countries whose currency is priced against the USD. This article grasps for the sensational - but misses reality.

Here is a decent article that touches on why this is mostly fear-mongering.

What the author doesn't mention as well is that most of the commodities that are supposedly taking off- are still quite a bit lower than they were in 2008 - and this in the face of massive stimulation.

I live in a rural area on a moderate amount of acreage. We have several lakes full of fish, hogs live on our place and the woods are full of deer. Our place is paid for and if I can pay the taxes, we should be able to make it through some hard times. Will it get that bad? I don't know and after reading the article and the comments, the future is uncertain.

The sooner this corrupt Jewish/Masonic house of cards comes crashing down, the sooner we can go about making an honest economy backed by silver (which is plentiful and stable and will benefit the public more than gold), an economy based on Main Street, rather than Wall Street. All debts, both public and private should be canceled and interest again outlawed!

Great comments except for the jackass who thinks the problem is a result of Union Workers.I realize this is a bit off, but maybe we should all just stop using paper money. Oh, it would be a pain in the butt I grant that much, but once people begin to refuse to accept paper money, the system will be forced to reintroduce silver and gold coinage. What else?

This is the third source that has mentioned the collapse of the dollar in 2012. All three people gave slightly different reasons. I think we should prepare for the worst. If everyone is wrong, then at least we are prepared for an emergency and nothing happens, but if they are right, our preparations will be life saving.

Ha, the bankers will steal everything through the magic of interest, then the politicians of the world will kill all the bankers and take it from them. Then the politicians will also be killed by the militaries and they will declare a jubilee for the people.

Mortgage rates are historically low you can easily refinance these days your mortgage to 3%. It is the best way to save money. Search online for "123 Mortgage Refinance" they did 3.54% refinance and free analysis of my current mortgage

Anonymous at 11:40 AM wanted to know what was ahead for Europe. My suggestion is to figure it's a cross between Ayn Rand's "Atlas Shrugged" (without the recovery happy ending), Jean Raspail's "The Camp of the Saints", "Eurabia", and Mary Steyn's "America Alone".

In the present situation we are all looking over our sholders and this analyst of what to expect and when is as good as any. But I had a bit of an epiphany the other day. If all this liquidity gets moving through the hands of the populas generating inflation then the now present governmnet bonds issued at near zero return rates will be debased. The government can then turn around buy back their debt at a discounted asking price with a devalued dollar. Sounds do-able until you realize that for every dollar paid out for these bonds the banking system will generate an additional 49. It's like stepping on the gas peddle when racing down hill.

Everyone seems to be comparing the coming collapse to something with which they can identify. Our future is similar to other social implosions (Roman Empire), but is unprecidented in its global impact. Trillions in debt? Trillions in unmet/unfunded obligations? Unsustainable empire building imperialism? Stagnant economy AND devalued currency?

No production AND currency devaluation occurring simultaneously (hyper-stagflation) is what we are discussing. It is the mother of all economic disasters.

Yes. There will be a day when our bankers refuse to loan us money (and we deserve it). The Chinese, Indians and Russians will say "no" to buying our Treasury debt. The federal reserve will own all of our debt and under the auspices of "backed by the full faith and credit of the United States government". Our national assets will become property of the privately held federal reserve, for cities/towns/infrastructure to be auctioned to the highest bidder. Good-bye US. Or is it "Good-BUY" US!

“In politics, nothing happens by accident. If it happens, you can bet it was planned that way.” Franklin D. Roosevelt

The Global Elite control the whole financial game. Lindsey Williams is just one guy who has accurately come out with predictions for each year and the exact timing for these predictions for the last 30 years based on his elitist insider (CEO oil executive) who is privy to all the minutes of the meetings where the IMF and World bank have already planned the future prices of oil and all commodities, currencies, and stockmarket crashes for the coming years far in advance.

Even with Lindsey's incredible track record of 95% accuracy rate I still found it hard to believe back in May 2008 when oil was at $140 per barrel (and looked like it was heading to $200 a barrel based on the charts) he came out on alternative radio to say that the price of crude oil would soon do a complete reversal and be below $50 a barrel within 6 months time (November 2008) and I watched in disbelief as 2 weeks later oil hit a high of $147 before heading down to hit a low of $33 a barrel within his time frame and said that the price of oil would then fluctuate over the next year or two in the $60-80 a barrel range just to hurt the Middle Eastern countries (UAE/Dubai) who had taken on a lot of debt based on higher crude oil prices. All this information was given to him by his Elitist insider who like all the other elites think the majority of the public is too damn stupid to ever catch on.

Now he has come out again based on the latest current information from his Elitist insider (who is 86 years old and is on his deathbed with terminal cancer) that the US dollar will be devalued now and continually throughout 2011 and by 2012 the US dollar would be officially "dead" and a new world currency introduced. He says a war with Iran will happen in early 2011 (February-April 2011). Hard to believe of course if he didn't have such a good track record for foreseeing future prices/events through his elitist insider that always seems impossible at the time he says it. He says by the end of 2011 the average american will be so broke that they will be more concerned with putting food on their table for their families (with grocery items gradually rising in price throughout 2011 due to inflation so not to alarm the general public like a frog being boiled alive one degree at a time where he isn't fully aware of it) than protesting the governments actions and says 2012 is the year of war scheduled by the elites. His insider has said that "Gold and silver is all you will be able to rely on by the end of 2011". Now that is hardly a prediction now as we see where gold and silver and the US dollar is headed. He also said oil would be $150-200 within 6-12 months from now and in 2012 the price of oil will escalate exponential even higher when these scheduled wars take place.

I certainly don't believe in the Mayan calendar but these Elites sure seem to as they bring the world to a crossroads in the near future.

Gerald Celente is another good source (www.trendsresearch.com) who has a 95% accuracy rate based on "current events form future trends". His predictions are similar.

If you want to use financial information to speculate on where things will go that is fine but I prefer getting the prices far in advance by the PTB (Elites) who have an incredible track record for being accurate since they just read the documents/minutes that they are privy to from the "movers and shakers" of the world economy who are the real global managers of the planet and not left up to chance by the market participants.

Thanks for the post, but all you've proven is that one shouldn't believe everything one reads on the Internet.

I'll buy you dinner if your predictions come true, but every theory of economics and finance, respected or alternative, insists you're wrong. Time to go back to the books and do some reading (rather than writing), young man.

Although there certainly hasn't been what could be considered a "free" market since 2001 at least, the truth of the matter is that the market ALWAYS knows the truth. If you wish to find evidence to verify this you can simply look within the market to see if it actually knew that the real estate bubble was going to blow before it actually happened. Housing prices were still rising well into late 2006 and even early 2007. But did the market predict a housing collapse well before it happened? The answer is yes. One need only look at the 10 year chart of any homebuilding stock such as TOL for instance. The price of the homebuilding stocks began to collapse in the summer of 2005...well before actual home prices collapsed. In fact, the final wave of the housing frenzy in late 2006 early 2007 created a divergence in the housing stocks as they only rallied to lower highs.

Is the stock market (not Wall St, Wall St controls our government and Wall St controls the market....I am speaking about the "real" market here) saying anything about the prospects for the hyper-inflation that everyone is so certain will happen right now? ...perhaps even something that is contrary to the overwhelmingly popular opinion that hyper-inflation is coming? There is a simple ratio that can be used to determine if gold and gold assets are overvalued or undervalued. It is the HUI/gold ratio. Simply take the price of the gold stocks as measured by the HUI index and divide by the price of physical gold. A reading of 50% of higher means gold assets are grossly overvalued....a reading below 30% means they are undervalued. In 2008 prior to the deflationary collapse of ALL assets the ratio stood at 50%+ as the HUI was at 500 and gold at appx 1000. This was a clear signal for impending collapse....which led to the greatest buying opportunity we may ever see again BTW. The ratio fell below 30% by late 2008...a short 8 to 10 months later...which "should" give everyone an idea how quickly things unwind when Wall St "improperly" manipulates the markets to bubble proportions.

Right now the HUI/gold ratio stands at appx 40%...far from grossly undervalued...but not grossly overvalued either. The one glaring "divergence" that shows up that should not be ignored by people calling for hyperinflation is the fact that the gold stocks have not been making higher highs even as the commodity behind the stocks has. Is this a similarity to what we saw before the real estate bubble where housing prices continued higher while the housing stocks failed to move on to higher highs? Time will tell of course. But the simple HUI/gold ratio now tells us that either physical gold prices are going to need to catch down to the stocks...OR, the price of the stocks are going to need to catch up!

An interesting sidenote to the commentary I just made about the HUI/gold ratio. If physical gold prices were to move lower as the price of the stocks either held steady or moved higher you could ask your friends this question >>> What gets more expensive as it gets cheaper? ...and the answer would of course be gold!

OK, one final "food for thought" item and then I promise to shut up. During the 2008 market meltdon that caused the gold stocks to lose 70% of their value in 10 months the catalyst was the finacial sector in particular. Does anyone else find it interesting that while Main St suffers....Wall St (the financial) sector is doing better than everyone else? Just more evidence of the fact that Wall St controls you and your very being. The good news again however is that the "real" market ALWAYS knows the truth. Therefore, one shouldn't be surprised that the financial stocks, the BIG moneyrunner bank stocks in particular, are currently underperforming. Wall St "had better" do something about that "divergence" soon....reeeeal soon. Of course things might be different this time and for once we will be able to ignore the message of the "real" market.

Ron Paul partnered with a PNAC board member to promote a world gold standard -- the old world fraud of banks fractionalizing debt based on gold reserves -- the same fraud that caused the Great Depression -- and almost like the fractional reserve banking system we have today.

The Rockefeller Foundation and William Volker Fund (Bilberberger Paul Volker) funded the Austrian School of Economics, including von Mises.

George Soros is known to fund national Libertarian Party projects with soft unreported money.

Debra Medina and other so-called grassroots tea party candidates promote tax plans written for them by mainstream neocon economics like Arthur Laffer to eliminate property taxes, so real estate boom/bust cycles will be more severe and so that the average person won't be able to afford land because big corporations and other wealthy individuals will use it as a store of wealth.

PETA and the Church of Scientology are used as funding conduits to fund a lot of the "grassroots" and libertarian activitism.

Right-wing libertarianism, which is the only form of libertarianism that gets funded and promoted, is a form of neo-feudalism. It was setup as the false opposition to socialism and to corrupt classical liberalism, which believes in such things as taxation of land and natural resources but no taxation on labor.

The government doesn't print (create) money. It never has printed (created) money except during the American Revolution and the Civil War. Private banks create money with fractional reserve banking.

Alex Jones is a pawn of the New World Order baiting the hook of feudalism with truth.

And this article is a joke. We've experienced a reduction in money supply because the banks are tightening credit. This has resulted in unemployment and a drop in real estate prices. When there is less money in circulation, something has to give. Hyper-inflation is not even on the radar.

1 - If the dollar started hyperinflating, wouldn't the stock of multi-national oil companies like XOM fare well in the long term? Granted, since oil is traded in dollars, and if gas hit $10/gallon demand would crash, the short term picture wouldn't be pretty. However, wouldn't a smart, oil-laden player like XOM would eventually worm its way out of the dollar-denominated contracts and re-value their oil (physical inventory & in-ground reserves) in the new normal currency, whatever that turns out to be?

2 - Same question for multi-national, "necessities" companies like P&G (although their period of pain might last longer)?

3 - Same question for the stock of any multi-national with significant presence & income outside the USA?

4 - What about software companies with no physical inventory, whose products are free to consumers? Think GOOG. Ad spending would be way down, but surviving companies would still need to advertise somewhere, no?

I think the great USA was destroyed by the first generation of adults after WWII. For some reason, they felt entitled to that which they didn't earn. They truly were the ones Benjamin Franklin spoke of when he said, "When the people find they can vote themselves money,that will herald the end of the republic."

Then it only got worse from there because the social engineers got their hands on the levers.

Gonzalo, I am new to your site. As a screenwriter and playwright, I have embarked this year on becoming better acquainted with the economic issues affecting our global survival. I find your observations the clearest of all the sites I have visited -- you are precise, your language is accessible to the initiate and the amateur or professional economist -- you don't obfuscate the issues by endless graphs and snarky badinage and lord be praised, you don't cull your references from wikipedia. You are intellectually rigorous and possess a lighthearted witticism that makes you an imminently enjoyable read. Look forward to your future posts.

we have the ability to turn it all around in time for a Merry Christmas: buy American products, or if you can't afford them, don't but foreign products...California wines are great, but don't forget the Finger Lakes (NYS)--don't buy BUD it has a foreign owner and the profits go elsewhere...Last but not least, get a new AMERICAN car...see how fast people go back to work and stay there...

The 2012 elections will be stolen and an effective dictatorship will quickly develop. This will be concurrent with turning the newly militarized police and Homeland Security forces on the citizens. Next, key cities will be locked down and round ups of undesirables will commence. As there will be millions rounded up and camps will have to be built. Use your imagination for what comes next.

Not sure about the timeline, but one thing's for sure- every hyperinflation event in recent history occurred either because the country was war torn, or because of a situation similar to this one- a nation, deeply in debt and suffering a deflationary spiral tries desperately to stimulate its economy with massive printing of money to compensate for the sudden drop off of velocity. As soon as things seem to normalize, velocity returns to normal, at which point, hyperinflation ensues. As prices spiral out of control, the panic buying begins.

The fact that other countries peg their currencies to the dollar simply means that they will soon unpeg their currencies from the dollar or they will foolishly try to stem the tide and prop up the dollar, only to get wiped out in the ensuing days and weeks, just like the bankers and brokers who tried to prop up the market during the 1929 crash. It just means they'll be an extra counterparty in addition to the Fed, who will then be left holding the bag when they realize they aren't wealthy enough to do what they set out to do.

The final secret prophecy of Our Lady of Fatima will be revealed soon according to a Vatican insider who must remain anonymous.Since Russia has been consecrated in 1984, the timeline to the prophesies of Revelations were extended. The Pope, in early 2011 will reveal the last secret of Our Lady of Fatima. My trusted inside source says with certainty that the secret will declare that the US dollar will no longer be accepted in the purchasing of oil, gold frankincense, myrrh or indulgences. Instead, a new currency with the popes picture on it and behind his image will be a flat earth. The new world currency will be called the "Torquemada". God have mercy on us in the US.

The fundamental question is this: Is this time different? The U.S. has meandered through many such periods before, whether inflationary, deflationary, debt-ridden, war consumed, or politically corrupt. The modern U.S. was created out of a war wherein one nation comprised of numerous States (the U.S.A. of Abraham Lincoln) chose to invade and destroy another nation comprised of numerous States (the C.S.A.). 600,000 people died in that four-year period. A nation torn apart over the issue of the nature of central government was forced back together by a newly empowered central government.

Following this nearly cataclysmic event, 150 years of turmoil and strife have brought us to the brink of 2011: a nation laboring under massive debt ($13T in current debt plus $120T in future obligations), engaged in two hot wars and numerous cold and quasi-wars, and surviving, barely, a central government hell-bent on imposing absolute Statism from the Radical Left.

Only a few times was the crisis du jour "different." The Great Depression, WWII, and the Cold War were different from the run-of-the-mill crises the U.S. faces at any given time. Is the current situation in which we find ourselves different in this same way? MONEY magazine, KIPLINGER's, all the mainstream media, all the mainstream investor companies, all the mainstream investment advisors, are telling us that no, it is not different; stay the course; use dollar-cost-averaging in U.S. stocks and you will ride out 10% annualized gains over 30 years. "Invest here."

But isn't $133T in national debt obligation, along with other trillions of dollars in State debt obligation, an annual deficit of $4T to $5T, and the assumption of medical obligations for an entire population (which is what Obamacare is all about, ultimately), different from anything else we have experienced?

After that fundamental question, and assuming the answer is "yes, this time is different," then we have a wide range of questions about what will happen and how best to cope with what does happen.

My final question--how can apparently bright people look at the same data and be 180 degrees out from one another in terms of what is happening?

I was always curious about 2012 as well but now it does, as you mentioned, appear to be a very big year in terms of changes in the way we live. Buy gold and silver coins and have a few years of food along with weapons to defend yourself!

And what effect does the author think that this will have on U.S. foreign policy, will the U.S. get out of Iraq and Afghanistan because it can no longer afford to wage unnecessary wars of conquest and aggression?

Over 3/4ths of our "money supply" is private issued credit. The FRN (Federal Reserve Note) is a little more than a token currency in that vast ocean of credit, with the flip side of that being a vast ocean of debt.

Credit is our medium of exchange and when that fails, which is what all of this is leading up to, 3/4ths of your "money supply" is going to go "POOF!" out of existence and all you're going to be left with is the debt.

#1. That was not what I consider "short and sweet," which I will herein demonstrate, and I do note that I did not read the vast majority of this post.

#2 As for the idea that the US Treasury CANNOT pay back it's bonds, I consider that absurd, though an extremely popular absurdity, as many absurdities can be. Consider that in 1933, when we might say that the US Treasury was in trouble (due to 20 year debts owed to the Federal Reserve as of 1913), it simply criminalized the possession of gold coinage, along the lines of a nationwide confiscation. I assert that the US Treasury can still pay back it's bonds because the US Federal Court system has US Marshalls and other mercenaries to extract wealth from the US Citizens who are considered the underwriters (as in the collateral co-signers or the insurance policy) of the debt contracts entered into by the US Treasury owed to such parties as the Federal Reserve.

#3 Everything that the general public (and perhaps you) may have considered an "economic surprise" in recent years was specifically referenced in advance with explanations. I personally wrote extensively about the emerging global credit crisis in 2003. In 2004 I published "The Real US deficit: Oil" and then in 2005 "worth its weight in... oil." The 1200% increase in US Dollar pricing of oil from 1999 to 2008 is not evidence of hyperinflation of that currency, but does explain why costs of many consumer goods have rose, especially those which require a lot of fuel to get from manufacturer to the point of sale. In the case of currency inflation, other commodities rise in price uniformly- like by the same percentage. That did not happen (or else, stocks and real estate and gold and milk would all have rose %1200 in price in those 9 years). However, oil prices rose in all currencies worldwide.

#4 Well, I did say short and sweet, so I'll stop here. I will give you my youtube channel and blog though: http://www.youtube.com/user/144jr144 http://jrfibonacci.wordpress.com

"The fundamental question is this: Is this time different? The U.S. has meandered through many such periods before, whether inflationary, deflationary, debt-ridden, war consumed, or politically corrupt. The modern U.S. was created out of a war wherein one nation comprised of numerous States (the U.S.A. of Abraham Lincoln) chose to invade and destroy another nation comprised of numerous States (the C.S.A.). 600,000 people died in that four-year period. A nation torn apart over the issue of the nature of central government was forced back together by a newly empowered central government."

Any credibility to an otherwise lucid post is "Gone with the Wind". It may be great literature sonny boy but it ain't the truth!

What a commodity sells for has little to do with its production cost (a little different for those that require other inputs like pork). Oil may fetch $80+, but it costs less than half that to produce. There will be sellers that accommodate to prevent demand destruction.

Cotton is selling high because of supply shortages, but it's growing left and right in Georgia.

Japan has a high deficit, and a much larger debt to GDP, they are alive.

Seems these have a better grip on what's going on than do the economists. The central figure is of course James Howard Kunstler; there are many others such as Nicole Foss (Automatic Earth).

As for inflation; since adding to the money supply is indeed inflationary, the issue is where the supplied money goes. The answer is it is hoarded. I'm hoarding some myself, actually, I have some money in my checking account. I also don't have any open credit. I am a walking, talking liquidity trap.

Worse than that, I'm getting rid of my car (-$10,000/year), have no TV, rent a small apartment with no furniture, am a vegetarian, wear used clothes and simply don't spend any more than I have to. Across America there are millions of folks just like me. As always I am out in front of the newest trend.

There are additional millions who are like me but don't want to be but they have no job so they have no choice.

Thinking that central banks and governments can cause inflation by themselves is common but rare. Countries that have readily available assets, dominant (within the country) currencies and capital flows are immune from hyperinflation as any excess liquidity flows into assets (liquidity traps) rather than remaining in circulation.

Hyperinflationary states trade other currencies - in and out of black markets. The Weimar Republic traded goldmarks (not effected by inflation) papiermarks, UK pound-sterling and gold dollars, then the rentenmark (Schacht). Hungary traded US dollars alongside the pengo then the florint; Zimbabwe traded US dollars, gold, South African rand, euros and Zimbabwe dollars.

In the US only the dollar trades, it is hegemonic in the US.

Hyperinflation is an outgrowth of instability. My God Man! We just had a successful election, the Tea Party won. Do you see any demonstrations? Yes, Colbert and Jon Stewart, a couple of comedians!

Weimar - assassination of Walter Rathenau, the French occupation of the Ruhr ... Chile - Allende ... Hungary - the end of WWII ... Japan - the end of WWII ... etc.

Countries with trade/cash flows can monetize for decades. The US started monetizing in the mid 1960's. Japan after 1990. The Eurozone has been monetizing since the introduction of the euro. China is monetizing without the asset base that exists in the US.

Hyperinflation only takes place when there is a large pool of available savings to 'burn'. The danger of hyperinflation lies in China with its large pool of savings. There is little retail saving in the US. Dollars in liquidity traps are an available pool but the management is professional and will not leak funds into circulation. Rather the bankers will ask the Fed to cease adding reserves if the oversupply becomes dangerous. Keep in mind that free money in reserves has real money value. Spending it will reduce value - so the bankers will let the others lose their money!

""""" He also pointed out that, with higher commodity costs and lower consumption, companies are going to be between the Devil and the deep blue sea. My own take is, if you can’t get more customers, then you’re just gonna have to charge more from the ones you got. """""

That's a deflation argument, sorry. It's the last business step before bankruptcy and liquidation.

GL, you have just been given THE best imprimatur that could be awarded, a nearly full page of commentary by Jim Willie (of the financial/ geopolitical newsletter The Golden Jackass) who doesn't suffer fools or academic economists gladly.

Your well-thought-out scenarios are going to serve a lot of awake and aware folks as actionable intelligence to be disregarded at their peril. I, for one, resonate strongly with your assumptions and quite logical deductions.

We are all FRICKIN" DOOMED at this point, unless the US government gets itself some "adult supervision"..... which is mere fantasy.

We Old Coots who have been around long enough to witness yet another reversion to challenging economic times know full-well that you speak Truth (with a capital T). Keep the good stuff a'coming, and we thank ye kindly for your service good sir.

The Mayans did not ever day the world would end in 2012. They said the world would go through massive changes and come out a better place at the end off the transformation period. All the "end of the world talk" is a combination of Hollywood and similar foolishness (unlike our dear Gonzalo's missive which is right on).

So now is the time to buy my condo at the shore? I'm paying cash by borrowing half from my federal retirement fund (currently 100% treasuries), so I'll pay myself back the interest on that loan. The other half is coming from cash saved in an online savings acct.

Shelby, I get paid in dollars, not gold; so, you're argument only works for the elites and not for working Americans. Down here in reality land we are getting our butts handed to us. Insurance is a rip off. Food prices are skyrocketing. And pay is stagnant with benefits disappearing. You need to talk to some people who've graduated with degfrees from B level US Universities and get a clue.

Also, down in reality land, people are only thinking how to transact in non-dollars. All the Federal Reserve Notes need in a competitor. Then they are done. Becuase they keep deflating their notes so much.

In modern American economics, sharply rising unemployment has been accompanied by sharply declining inflation without fail. Of course, every time there is high unemployment and mounting national debt (yes, America has seen these levels of debt before), educated, intelligent, and well-intentioned authors like Mr. Lira invariably scream, "This time is different!"

Let's look at some numbers. The national unemployment rate is relatively stable at about 9.8% and the inflation rate is also relatively stable at about 1.6% annually. There has been a notable rise in the CPI to about 0.4% monthly for both Dec 2010 and Jan 2011. Notable, but hardly the makings of hyperinflation. There are no anomalies that imply the current financial situation is anything more than a cycle that has repeated itself countless times in world history... wackos and doomsayers included.

However, the near future should give everyone an opportunity to decide for themselves. It looks like we may see another sharp rise in unemployment in the near future, possibly to levels of 15% or higher. When this happens, there will also be a sharp drop in the inflation rate as has always happened previously. If, however, this next rise in unemployment is accompanied by sharply rising inflation, then lookout! This time really is different, but I seriously doubt that will be the case.

Hi, it seems like you were quite a bit off. Although I would've made the same prediction last year, it looks like CPI (you didn't say which one - CPI-U, CPI, with or without seasonal adjustment etc) is still tame.

What say you? Should we add one year to your predicitions or has something changed?

One of the situations I find most difficult is that the vast majority of Americans are still oblivious to the fact that dramatic changes are inevitable in our not too distant future.Hospitality furniture